Ripple (XRP) Alleges SEC Unable to Proof XRP Sales as Investment Contracts

The tussle between payment protocol Ripple Labs network and the US Securities and Exchange Commission (SEC) reported an update. The former came up with the claim that the latter has no proof that the XRP sales of the company were some kind of investment contracts. This was one of the factors for which the SEC filed a lawsuit against Ripple.

Both the sides in the Ripple vs SEC lawsuit are seeking a summary judgment motion. While supporting the motion, lawyers on behalf of the payment protocol said that the financial regulator was not able to facilitate any proof regarding XRP offer or sale. The SEC failed to show that any XRP sale between 2013 and 2020 was subject to any investment contract.

In any case, with regard to each of the three Howey factors, the SEC has failed to carry its duty. Regarding the first part, the SEC admits that there was absolutely no financial investment involved in the billions of XRP units given by the Defendants.

The SEC has failed to demonstrate that buyers invested their money in a common company, as required by Howey, instead of merely purchasing an asset, even in transactions that entailed the exchange of money.

To determine whether a transaction qualifies as a investment contract and is consequently subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934, one must apply the Howey test, which is named after a U.S. Supreme Court decision.

Whether the transaction suggests an expectation of profit from the effort of others is one of the essential components of the Howey test, which, according to Ripple, the SEC has failed to establish is present in XRP transactions.

The SEC cannot overcome two fundamental problems with the third component, the expectation of earnings based purely on the work of others. First off, the SEC has made clear that there are no genuine commitments made by the promoter, therefore there can be no reasonable expectation.

No evidence of any ‘promise’ can be found in the SEC’s fact statements, and the only time a promise is mentioned, it is made clear that Ripple was not making any. Despite the SEC’s assertion that the defendants made promises, this claim is unsubstantiated.

Ripple claims that the SEC cannot pass the Howey test and is asking for a summary judgment in its favor.